ACCA and the University of Glasgow study urges urgent action from standard-setters, revealing inconsistencies in accounting treatments for carbon-related instruments and the need for a globally applicable guidance.
With no IFRS Accounting Standard dedicated to accounting for carbon-related instruments, a new global study by ACCA (the Association of Chartered Certified Accountants)and the Adam Smith Business School at the University of Glasgow reveals the growing complexity and diversity in how companies account for these instruments, and the consequences for various stakeholders in the corporate reporting ecosystem. The study, Reality of accounting for carbon-related instruments, analyses the annual reports of 300 companies in high-emitting sectors across the globe.
“Without guidance from standard setters, companies are developing their own accounting policies and providing information based on their own discretion. While the application of judgement when applying accounting policies is welcome, the use of substantially different accounting policies and different terms to describe these instruments, undermines transparency and comparability,” said Dr Ioannis Tsalavoutas, professor of accounting at the University of Glasgow.
ACCA supplements the research report with two articles giving both decision-makers and finance teams practical insights about the drivers for and implications of engaging with these instruments, plus a practical workflow that is based on existing IFRS Accounting Standards. The articles also reveal the real-world implications for employees, customers and investors navigating ESG claims, tax uncertainties and reputational pressures.
“Good quality information about carbon-related instruments would benefit a broad spectrum of stakeholders in the corporate reporting ecosystem,” said Aaron Saw, head of corporate reporting insights – financial at ACCA. “Our research provides a glimpse into the complex landscape and offers a starting point for purpose-driven accounting and reporting of carbon-related instruments.”
The world needs a future-ready standard for a growing challenge
The lack of a global accounting standard for carbon-related instruments is already creating challenges for investors and companies alike. This study urges the creation of a global accounting standard for carbon-related instruments to enable consistent accounting treatments and disclosure of relevant information. The standard should help companies determine:
the appropriate scope when accounting for each carbon-related instrument that faithfully represents its nature, function and intended use
when and how to recognise the instrument
the appropriate measurement approaches, and
relevant disclosures to enable users to evaluate the financial effects of such an instrument on the company, including its nature, function and intended use.
Introducing an overarching term, such as “carbon-related instruments”, would help to harmonise description across markets.
ACCA urges finance professionals, regulators, and standard-setters to explore the research report and articles and contribute to shaping the future of accounting for and reporting of carbon-related instruments. By aligning practice with purpose, we can build clarity, consistency and trust in the carbon markets.
Download the report and articles here.
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About ACCA
We are ACCA (the Association of Chartered Certified Accountants), a globally recognised professional accountancy body providing qualifications and advancing standards in accountancy worldwide.
Founded in 1904 to widen access to the accountancy profession, we’ve long championed inclusion and today proudly support a diverse community of over 252,500 members and 526,000 future members in 180 countries.
Our forward-looking qualifications, continuous learning and insights are respected and valued by employers in every sector. They equip individuals with the business and finance expertise and ethical judgment to create, protect, and report the sustainable value delivered by organisations and economies.
Guided by our purpose and values, our ambition is to lead the accountancy profession for a changed world. Partnering with policymakers, standard setters, the donor community, educators and other accountancy bodies, we’re strengthening and building a profession that drives a sustainable future for all.
Find out more at: www.accaglobal.com
About the Adam Smith Business School
The University of Glasgow includes among its alumni, the father of economics, Adam Smith. The Adam Smith Business School is named in his honour. We aim to follow his legacy by developing enlightened, engaged and enterprising graduates, who are internationally recognised and make a positive impact on culture and society.
Our business is about creating inspiring leaders, researchers and professionals whose research and relations with industry have real impact, influencing organisations as they develop and grow globally.
The Adam Smith Business School has the triple crown of accreditation and are accredited by the Association to Advance Collegiate Schools of Business (AACSB International), the European Quality Improvement System (EQUIS) and the Association of MBAs (AMBA) for our Glasgow MBA programme.
The School is home to research, of international and national excellence, that contributes to theoretical advancement and is relevant to practice.
Find out more about us at: www.gla.ac.uk/schools/business/aboutus/
